Monday, August 20, 2007

What Should I do?

I got this question in today and thought I would share it with you.

Q: I recently within the last two year purchased a home but I would like to refi ASAP any lenders that you recommend to refi with also.
I have invested a little bit of money in a timeshare that I have purchase in Las Vegas. (Was this a good investment?)
I also have never invested in the market what would you suggest a good starting point would be to find out which stocks to purchases.
Thank you for your time and assistance.

A: Good news you’re doing something proactive to make a future for yourself and your family financially this is more than most people accomplish if ever. Many times people start late in life and this will undoubtedly cause financial hardships. You are doing the right thing by thinking about and taking action now.

First the house thing, I think you will be okay to wait on your refinance till closer to the end of the year. If you play your cards right you will see some appreciation or stabilization of home prices in your area. This will make financing your home easier. Also you have some time to make sure you have a really strong debt to income ration, so any unneeded expenses work to bring those down and your fico score will go up allowing you to get the best possible interest rate. Don’t forget you can buy your home interest rate down by asking to pay extra points at closing to buy the rate down. Sometimes buying the rate down is a better option if you plan to stay in your home longer than three years. I would look for a 30 year fixed loan and use the extra principal payment as a way to pay your loan off early if you so choose.

I do believe with the 3.5 billion today and the some 17 billion the fed injected into our economy over the last week and the fact that they lowered the overnight discount rate we will see them lean towards lower the interest rate in September and maybe more by the end of the year, there is speculation out there that there could in-fact be as much as a full basis point reduction. If this is the case which I do believe you will see lower rates by years end in which to refinance your existing home loan.

As for lenders the major banks will probably see the cash from the fed reserve before anyone else, Bank of America may be a good choice.

On your time share, I am in central Florida and we certainly have our share of time shares. Some are good and some are bad I personally don’t have one my sister does. She loves hers. You have to look at what your monthly fees are in addition to your payment etc or cost of using your money. Some sites hit you for pretty stiff increases in your fees and these need to be taken into account. The bottom line comes down to how much cash have you outlaid and what is your return on that cash that will determine if it is a good investment or not.

That is one reason I say pay off your high interest rate credit cards first if you have any because you don’t want to be paying 18-20% on your credit cards and getting less on cash you have. The only thing you have to remember is can you make more return on your cash than you can borrow. If you have 20k sitting in a CD at 2% and you owe 20k on your mortgage at say 8% then you should pay off your loan, if you were making 18% on your cash in mutual funds then you are technically borrowing the banks money at 8% and netting 10-12% profit on the spread. Invest wisely.

Finally on Investing for new comers to the market place start out learning Mutual funds, they provide a better avenue for diversification than just buying stocks, My personal 401k was up over 17.88% this year, all mutual funds.

I will send you a copy of my software PremiereTrade Ai this will give you a chance to utilize all the tools and see for your self how easy it is to start trading mutual funds etc.

Happy Investing!

James Dicks

Saturday, August 18, 2007

Adjustable Rate Mortgage Blues-Don't Panic

August 18, 2008
I just got back from southern California; here in Central Florida we think the real estate market has gotten tough but not really. We haven’t seen the market take a huge drop in home values (depreciation) like out west or primarily in markets that have grown up to much or to fast.
In Southern California in some areas they are seeing depreciation upwards to 15% maybe more. As with all real estate markets in the country there will be pockets that just won’t be affected by the down turn. These are areas that have great schools or ocean front, condos not included, in south Florida the condo market is so over saturated that no matter where the condos are they are suffering lower prices.
The adjustable rate mortgages, or the exotic mortgages that allow you to pick your payment option, negative am type loans. Let me first address the negative am type loans. All though they are not ideal and you might end up owing more than you initially started out with you have to think about the appreciation that the property can achieve.
It usually takes about six to seven years for a home to double in value, and we have seen that from coat to coast and more like 3-4 years, I know in Southern California, this year excluded houses doubled in value in 3 short years. So yes some areas are seeing a drop in prices but it won’t last long time and prices will rebound.
Meanwhile back to a negative am, so the loan goes up form its original amount, but not to panic, if the home goes up in value more than the negative am your loan to value gets better. Let’s say that you are at 100% loan to value right now, and all of a sudden your loan goes up by 2% and your house value drops by 5% now you are upside down by 7%.
Not to worry because your home value will simply not continue to go down, maybe over the next 6-12 months, but you are going to see interest rates drop a bit between now and the end of the year the fed is getting aggressive by cutting the overnight discount rate to banks so they ultimately have more money to loan.
All of this will have an affect on the real estate market that we see. The example we have above if the home goes up say 50% over the next 5 years then you will have about 50k in value and somewhere around 10% increase in loan amount, that means in the end you are up 40% in value and now can have a much better chance to get your home refinanced as you have a better loan to value.
One of the reasons you see home prices dropping is because you have people that simply got a little too over extended. All of the mortgage products out there allowed people to get a little ahead of them selves and now that the rates are going up people are scrambling to catch up.
In Southern California, house prices are simply just too high to begin with and people were out getting first, second, and even third mortgages to get into a house, now they are paying upwards of 10-20k per year more and can’t handle it. First thing you see are the for sale signs going up in the neighborhood then they turn to lease purchase, rent or anything just take my house before foreclosure, when you get more sellers than buyers you end up seeing home prices drop, and they will stay that way until the signs start coming down. That will happen; when people can refinance their houses which looks like that possibility is on the horizon.
Now enter foreclosures as the banks start taking properties back the signs will start to go away, as soon as those signs disappear the prices will start going back up and you will see appreciation coming back again.
See my next blog talking about foreclosures. All the things I cover in my blog are from questions that I get from my customers or from men and women or our armed services as I travel the world discussing the very thing s I write about here in an effort to give back to my fellow marines, sailors, soldiers and airmen.
Happy Investing!
All My Best,
James Dicks